Wednesday, December 23, 2009

Weekly Wrap


This work week is abbreviated, and so was the "recovery." This morning brought a double dose of bad news for the housing industry, which is being counted on to lead the U.S. out of recession. First, the Mortgage Bankers Association Purchase Index (above), tracking mortgage applications for planned home purchases, made a U-turn south last week, declining over 11% from the week before, seasonally adjusted. The raw index was down almost 33% from the same week last year.

Then came a report from the Commerce Department that annualized sales of new homes in November declined over 11% (to 355,000) from the month before--even after October's figure was revised downward from 430K to 400K (the five months ending in October were running at 404K). The back-to-back announcements of double-digit drops from already depressed bases brought a screeching halt (at least for now) to this week's rapid rise in bond yields. Such a rise generally signals a pick-up in economic activity.

GDP growth in the third quarter was revised downward again, to 2.2% (after an earlier revision from the initially reported 3.5% to 2.8%). It has been estimated that the now- defunct Cash for Clunkers program added 1.5% to Q3 GDP, and a replenishing of inventories accounted for the remaining growth. Otherwise, GDP was flat. Again, from a depressed precursor. Despite massive government stimulus. Take that to the bank, why don't you.

Intent on further crippling the economy, President Obama continued his full-court press on Capitol Hill for healthcare reform. Needing two votes to invoke cloture in the Senate, the prez larded the bill with the "Cornhusker Kickback" and the "Louisiana Purchase," exempting Nebraska and Louisiana from any cost-sharing for future Medicaid expansions. The other 48 states can go [abuse] themselves. It is just this kind of horse-[trading] that gets me thinking about secession.

In last week's pep talk at the White House, the Big O told Senate Democrats that they were "on the precipice" of an historic accomplishment. The President is known for his careful choice of words:

prec·i·pice
n.
1. An overhanging or extremely steep mass of rock, such as a crag or the face of a cliff.
2. The brink of a dangerous or disastrous situation: on the precipice of defeat.

Tomorrow at 7 a.m. the Senate will most likely pass its version of healthcare reform, taking us all one step closer to the edge.

Jobs will be hard to come by, with or without healthcare legislation. Late yesterday Cintas Corporation, the largest U.S. supplier of work uniforms, reported disappointing quarterly earnings. Today investors dumped the company's stock, sending the share price down by more than 11%. (What is it with this number eleven?) Clearly the company's fortunes are tied to job creation. When asked to provide guidance for upcoming quarters, CFO Bill Gale gave none, saying only that "we believe the current analysts' estimates are overly optimistic for the remainder of this fiscal year and into 2011." Get that? Two thousand eleven.

In other words, investors betting too soon on a recovery will lose their shirts.

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